A media empire in flux: Murdoch’s legal battle to change family trust
The Murdoch family is fighting over control of the family trust, which could determine the future direction of Rupert Murdoch’s media empire.
“The best-laid plans of mice and men often go awry,” wrote poet Robert Burns.
That may be no truer than in estate planning.
Rupert Murdoch, 94, patriarch of the News Corp empire, last year lost a legal battle over control of his media businesses, including Fox News. Jimmy Buffett’s widow Jane and his longtime business manager and financial adviser Richard Mozenter currently have dueling lawsuits for control of the late Margaritaville singer’s $275 million estate.
With the great wealth transfer underway, people – even the rich, famous and business savvy – still struggle to get the transfer right. Laws, assets and especially, relationships change over time, making long-term planning tricky.
“Effective estate planning accounts for the moment when family members no longer see eye to eye, rather than assuming harmony will last,” said Kevin Ghassomian, Venable LLP partner.
What could go wrong?
More Baby Boomers – the largest generation until recently – are aging, suffering from dementia, dying, and according to research and consulting firm Cerulli Associates, passing on their nearly $70 trillion in assets between 2018 and 2042.
All those factors, and more, contribute to the increase in estate litigation, lawyers said. The State of New York’s court system, for example, reported an approximate 350% increase to 3,500 from 1,005 in contested estate cases between 2016 and 2019. They declined in 2020 amid pandemic-related court closures, but the growing trend remains intact.
Some well-known figures have recently been at the center of such legal battles.
- Murdoch used an irrevocable trust, which typically isn’t changeable, to give each of four children equal voting rights over his famously conservative media empire. Court proceedings are sealed, but according to accounts from journalists’ sources privy to confidential documents, as years passed, Murdoch began to feel his oldest son Lachlan would best reflect and carry on his right-leaning views. He tried to change the trust to give Lachlan full control of his businesses while keeping intact the equal financial split among the children, news reports said.
Ultimately, a Nevada probate commissioner ruled father and son acted in “bad faith” and that instead of making changes in the best interests of all of the beneficiaries, the goal was simply to put Lachlan in charge, according to the New York Times.
- Buffett used a marital trust, an irrevocable trust that allows transfer of assets to a surviving spouse tax free and may prevent a spouse from squandering assets if he/she isn’t adept at managing money.
Buffett’s mistake was naming co-trustees of the trust, said Ghassomian. “When co-trustees are given equal authority without a process for resolving disagreements, the result is not governance but gridlock,” he said. “Without a clear framework for decision-making, the trust becomes vulnerable to personal conflict and, ultimately, litigation.”
How can people avoid conflicts?
When talking about estate planning, a will is often the first thing that comes to mind. A will dictates how your assets will be distributed upon your death. However, it’s just one piece of the puzzle.
Many lawyers and financial advisers will also suggest other tools such as trusts. Trusts can offer greater control over how and when assets are distributed, and they can also help avoid a potentially lengthy and costly legal process called probate. But they can also be complicated.
“There is no one-size-fits-all solution when it comes to using a trust,” said Cheri Stein, senior trust officer with Plante Moran Wealth Management.
Choosing the right one is paramount, but that’s easier said than done.
Trusts are complicated, should people skip them?
The Murdoch and Buffett “disputes do not reflect a failure of trusts as a planning vehicle,” Ghassomian said. “Rather, they illustrate the consequences of inadequate structure, poor governance design, or failure to anticipate future conflict. Trusts are not inherently problematic. In fact, when thoughtfully drafted, they are among the most effective tools for managing wealth, protecting beneficiaries, and carrying out long-term family objectives.”
What should people consider when using a trust?
Items to consider when thinking about establishing a trust, experts say, include:
- Trustee: “Many people want to not only leave everything to their children equally, but also make them all equal co-trustees, fearing the appearance of playing favorites if they pick just one,” said Joseph Fresard, attorney at Simasko Law in Mount Clements, Michigan. “I find this is usually misguided. Each additional trustee greatly increases the chance of litigation, as disagreements between trustees often need court intervention to resolve. Remember that the trustee is still bound by the terms of the trust you write in, you are not giving them carte blanche, so you don’t really have to worry much about the other beneficiaries not getting what you intend for them.”
- Structure: “A well-conceived trust does more than name the right people, it provides the structure they need to make decisions, even when they disagree,” Ghassomian said. “That might include a neutral tie-breaker, clear division of duties, or procedures to keep the trust functioning when consensus breaks down. Even well-intentioned people can disagree, and when they do, the document should offer a way forward that protects both relationships and the administration of the trust.”
- Control: If you give assets to an irrevocable trust, “you are giving up at least some amount of power over them,” Fresard said. “They’re called irrevocable for a reason.”
- Location: Trust rules vary by state. “While most individuals set up trusts in their home state, certain states, like Nevada, offer favorable trust laws,” Stein said. For example, Nevada is known for its strong asset protection laws to shield irrevocable trusts from creditors, has no state income tax that can benefit trusts with significant taxable income, allows long perpetuity period for trusts for dynasty trusts and provide greater flexibility to make changes to irrevocable trusts compared to other states, she said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
